Question 3

Study the scenario and complete the questions that follow: Summerhouse (Pty) Ltd You are the auditor in charge of the year-end audit of Franschhoek (Pty) Ltd, a fruit canning factory. Although Franshoek (Pty) Ltd is only required in terms of Company Regulations to have its Annual Financial Statements (AFS) independently reviewed, the terms and conditions of its major long-term finance agreement require that the company have its AFS audited by a registered auditor. During the course of the audit, you discovered that the financial director and operations director (the only two executive directors on the board of directors), both of whom own shares in the company, have been falsifying the monthly VAT returns by claiming VAT on purchases to which the company is not entitled. You are satisfied that a reportable irregularity (s45 of the Auditing Professions Act) has taken place.

3.1 Identify and comment briefly on each of the matters you would have considered in satisfying yourself that a reportable irregularity has taken place. (5 Marks)

3.2 Outline the procedure you would have followed on satisfying yourself that a reportable irregularity has taken place. (5 Marks)